Egypt's economy: Light at end of tunnel

A decline in political confrontation in Egypt may relieve the economic tension in the country. I agree with the fact that this will not happen immediately and will take many years, but there remain hopes for recovery.

Upon what do these hopes rely? The answer is Egypt's potential which is huge.

This potential includes the country's favourable geographical position at the crossroads of navigable waterways, trade agreements with neighbouring countries, unique architectural monuments that attract tourists and the country's 85 million people which means cheap labour and large unsaturated markets. These advantages have always made Egypt the object of attention for foreign investors.

Egypt's current government does not plan to take emergency measures for counteracting the negative developments in the country's economy.

As Egypt's Finance Minister Ahmed Galal noted, the key objectives of the current Cabinet of Ministers are to bring order to the fiscal sphere and promotion of social justice through job creation.

Galal also believes that only foreign assistance will help Egypt avoid the increasing budget deficit.

"Fortunately, a number of Arab countries have offered us their support and it will help us gain some time," he added.

It seems that the minister was talking about the time which Egypt needs to mobilise its domestic funds. It is known that three main items serve as the important income sources of Egypt's state budget: duties from ships passing through the Suez Canal, tourism revenues and funds from the export of oil and agricultural products.

In particular, income from the operation of the Suez Canal is the main source of income to the Egyptian budget. The Suez Canal is the shortest waterway between the Atlantic and Indian Oceans and currently serves up to 15 per cent of the entire world's trade transportation and over 20 per cent of oil transportation from the Persian Gulf to Europe and America.

Consequently, the income from the Canal can be considered a stable source and the growth of tax levies for the passage of vessels by two to five per cent since May 2013 increased the revenue of the Egyptian state treasury. Earlier tax levies for passage of vessels through the Canal constituted $5.6 billion annually.

Extraction and exports of oil also plays a significant role in the replenishment of the Egyptian state budget. Although it is known that Egypt's oil extraction system is weak, the country annually receives over $10 billion of income from oil exports.

Considering the current high level of world oil prices and that oil is Egypt's main export, there is hope that petrodollars will replenish the state treasury and competent management of these funds is sufficient for this purpose.

In third place among the sources of replenishment of the Egyptian state treasury is the tourism sector. Being a stable year from the political viewpoint, 2010 was a record year for the tourism industry of the state with 14.5 million people who visited Egypt, bringing to the country an income of almost 10 billion euros.

And even if for a while the unstable situation in Egypt scares off tourists from their favourite destinations, this country with such a rich heritage will always attract lovers of powerful and mysterious civilisations. According to the official statistics, 51 per cent of the population is involved to the service sector.

Regarding the restoration of agricultural production which plays a leading role in Egypt's export, tangible changes are observed in this area.

Mohamed Morsi, who remained in power for little more than a year had time during the indicated period to reduce excessively high prices in this sphere and make farming profitable and peasants who previously left their farms and poured to the capital in search of earnings, began to return to the villages.

Around 33 per cent of the able-bodied population is engaged in Egypt's agriculture. A subtropical climate and rational use of water gives opportunity to grow two or three crops a year which facilitates a year round export of agricultural products. This means Egypt's share in the world's cotton production amounts to nearly three per cent.

Nevertheless an optimistic mood in Egypt's economic recovery is combined with extremely critical economic figures for today. The Egyptian economy which increased by five to seven per cent per year till 2010, now decreases by seven per cent per month and gold reserves decreased from $36 billion to $13 billion.

Unemployment increased from nine per cent in 2010 to 13 per cent now and inflation hit eight per cent. As a result, exports fell by almost 50 per cent, revenues from tourism by 33 per cent and the country's stock market lost almost 50 per cent of its value.

However historically, the Egyptian economy went through ups and downs more than once in the country's modern history and rapid progress in its economy in the middle of last century which struck the whole world, is still fresh in the mind.

The current government in Egypt now faces the necessity to not only take measures on the stabilisation of the economy, but also to bear the costs of the conflict and peace recovery. The sooner Egypt's political stability is restored, the faster the country will be able to regain its niche in a global economy.


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